Companies Face Higher Fabric Prices

Textile companies caught between suppliers charging higher fiber prices and apparel manufacturers reluctant to pay more for fabric are trying to escape from the squeeze.

Mills have been grappling with higher prices for the past year on a range of raw materials, from polyester to farm-grown cotton.

But their customers -- retailers and clothing makers -- also have struggled with relatively lackluster sales in a highly competitive retail environment and have fought paying higher fabric prices.

"They're getting squeezed on both sides," said Lorraine Miller, an analyst at Robinson-Humphrey Co. The situation is exacerbated because a relatively small number of retailers hold vast amounts of power and can avoid paying increases, she said.

Antoine ElChaar, president and chief executive officer of Allentown apparel maker A & Z Industries Ltd., said he's noticed a 5 percent to 7 percent increase in the cost of polyester fabric this year.

He agreed that the fabric mills are the link in the apparel-making chain taking the most stress.

A&Z uses a lot of polartech fabric, a 100 percent polyester, double-sided fleece. For now, said ElChaar, A&Z is doing pretty well because the fabric they're using was ordered in 1994 at the going rate for that time.

"In 1996 we'll see the major price effect. We're concerned it won't be as easy as it used to be," he said.

ElChaar said his business is supplied by several mills, among which is Burlington Industries Inc. of Greensboro, N.C. He said the mills don't always try to pass the cost of the fabric on to the companies like his.

"But if they do, and we try to pass it on, retailers resist because of the very tight retail market. Between us and the fabric mill, they absorb the most," he said.

ElChaar said his sales are up 10 percent to 15 percent over the same time last year, but at this time of the year, he usually sees about 50 percent growth. His income is holding steady, he said.

New polyester price hikes expected at the end of the month will bring increases on certain fibers to about 25 percent in the past year or so, while cotton has reached its highest prices since the Civil War, hitting about $1.05 a pound, up 30 percent from last year.

And facing the prospects of the newest hike in polyester, some textilers who use the manufactured fiber are vowing this time around to pass along all of the increases.

"With a sluggish retail environment there's a lot more resistance to putting up with any price increases," said Burlington Industries Inc. spokesman Bryant Haskins. "But we've gotten to the point we cannot continue this level of price absorption. We're going to try to pass some of these costs on."

Though Burlington company and other textile producers say it is nearly impossible to evaluate the percentage of profits lost to price increases, they say the hikes have hurt.

Sales for Burlington were up 11 percent to $583.4 million in the second quarter ended April, but net income fell about 19 percent. Fiber accounts for about a third of a textile company's costs.

Texfi Industries Inc. started trying to pass price increases along in recent months, but also has met with resistance, said Andrew Parise, president of the Raleigh, N.C.-based company.

"We haven't recouped nearly all of the price increases by any means," Parise said. "We've got to pass these increases along."

Parise took issue with the newly announced polyester price boost, saying it seemed out of line "because the textile business is quiet right now."

Until now, textile companies like Burlington have managed in large part to offset losses from price hikes with strong business levels, said Prudential Securities Research Inc. analyst Jack Pickler. That could change, as demand for fabric dips.

Lower demand also could set the stage for lower fiber prices, but an immediate decrease appears unlikely.

Grover Smith, a vice president at Hoechst Celanese, which produces polyester, said a number of factors feeding the inflation lie beyond the Hoechst AG unit's control. The price of the chemicals used in making the fiber has gone up, he said. And global demand for polyester continues to rise, fueled in part by new uses such as bottling, while the supply of raw materials has remained constant.

"It is very difficult in terms of the price increase," said Smith. "But by the same token, the polyester business is more of a global business; it's not only influenced by what happens in North America."

Carl Priestland, an economist at the Apparel Manufacturers Association, speculated that eventually everyone through the textile chain will pick up a larger chunk of the price increase, including apparel makers and retailers.